- China’s steel industry is buckling as a worsening property crisis weakens demand, causing Beijing’s construction-led growth model to look even more indefensible and unsustainable.
- Prices of steel used for construction have fallen to a two-year low last week as well.
China’s steel industry is buckling as a worsening property crisis weakens demand, causing Beijing’s construction-led growth model to look even more indefensible and unsustainable.
Close to a third of China’s steel mills could fall into bankruptcy amid a squeeze that is probably set to last half a decade.
Beijing’s crackdown on its heavily levered real estate sector is now having unintended and unexpected consequences for ancillary industries, with the key industry contributing as much as 29% of GDP and responsible for as much as 70% of the Chinese economy.
Although Beijing has dialed back some measures to restoke the fortunes of its real estate sector, such as encouraging lenders to make mortgages more readily available, rolling zero-Covid lockdowns have proved a drag on sentiment and stymied any remaining demand for apartments.
Beijing continues to vacillate when it comes to doling out bailouts for some of its largest and most embattled property developers, including China Evergrande Group, which was one of the first to show signs of weakness.
Inconsistent legislation and application of policy have also clouded the outlook for China’s real estate sector, with strict lending limitations still in place in many areas and Beijing allowing homebuyers to default on mortgage payments pending the completion of unfinished projects.
A steel purchasing managers index for July tumbled to its lowest reading since 2008, the year of the Financial Crisis and Goldman Sachs sees a 5% fall in demand for steel this year.
With the property sector accounting for a at least a third of Chinese steel demand, China’s economy is rapidly running out of time to round the corner on an industry that has been the cornerstone of its growth model for the past several decades.
In the near-term, the main challenge for steel is the large stock of unfinished properties, as seen by a flood of recent mortgage boycotts.
Prices of steel used for construction have fallen to a two-year low last week as well.